(e): Estimate. (f): Forecast. *Fiscal year 2019 from October 2018 to September 2019.

STRENGTHS

World’s sixth largest producer of LNG

Petrochemical industry (world’s leading exporter of methanol and ammonia)

Large sovereign wealth fund and currency reserves

Lead country in the Caribbean Community (Caricom)

Well-trained English-speaking workforce

WEAKNESSES

Small economy and reliant on oil and gas

Underdeveloped non-energy sector (including agriculture and tourism)

Projected decline in energy resources

Ineffective public initiatives

Inadequate supervision of financial sector

Inequitable wealth distribution; drug traffic-related crime

RISK ASSESSMENT

The recession is over

After a four-year recession due to weaker hydrocarbon prices and lower production in the energy sector, growth returned to positive territory in 2018, and the recovery is expected to continue in 2019. Economic activity is mainly linked to the energy sector (oil, gas and petrochemicals), which accounted for 35% of GDP and 70% of exports in 2017. The sector expanded by 8% in 2018, and new energy projects in 2019 – including the opening of the Angelin gas platform off the southeast coast of Trinidad – should maintain its good contribution to growth. Other hitherto underdeveloped sectors are expected to participate to a small extent in economic activity through the government's Public Sector Investment Programme to transform and diversify the economy. In 2019, 2% of GDP is forecast to be allocated to building roads, improving tourism infrastructure and developing the agricultural sector. Nevertheless, private investment and consumption may remain constrained by limited access to credit, with the public sphere capturing a large share of the domestic banking system’s financing capacity. Household income is expected to decline owing to a downturn in remittance income from expatriate workers, which is keeping domestic demand weak. Inflation should remain under control, but will depend mainly on food prices.

Maintaining a restrictive fiscal policy

The budget balance shows a large deficit, which is expected to decline in 2019 as a restrictive fiscal policy is maintained. The budget deficit is mainly due to incompressible expenditure on civil servant salaries and wages, as well as transfers and subsidies provided for by law, which accounted for 55% of total expenditure in 2017. However, spending is expected to fall due to a reduction in subsidies and transfers (2% of GDP) and public goods and services (1% of GDP). In addition, revenues, mainly from the energy sector (6% of GDP), are expected to go up as production in the gas industries rises. Moreover, the implementation of tax reforms by the government, including finalisation of energy tax reforms and approval of the real estate taxation bill, should improve tax collection. The deficit is to be financed by drawing on the Heritage and Stabilisation Fund, which is Trinidad and Tobago’s sovereign wealth fund, and by taking out domestic and international bank loans at high interest rates – therefore increasing the interest burden and public debt, the external share of which represented 17% of GDP in 2017.

In terms of the external accounts, the current account surplus is expected to shrink in 2019. It stems from a trade surplus, with exports mainly composed of crude and refined oil (27%), natural gas (22%), petrochemicals (27%) and imports of fuel (26%) and machinery (28%). Rising energy prices and gas production are expected to maintain the trade surplus in 2019. Conversely, the services balance shows a structural deficit (6% of GDP in 2017), which is expected to widen as shipping costs exceed tourism revenues. The financial account shows strong capital outflows (15% of GDP in 2017), mainly due to net acquisitions of portfolios and other investment instruments by domestic residents (14% of GDP in 2017) and FDI outflows (2%). In this context, the central bank has to intervene regularly to maintain a fixed parity between the national currency and the US dollar, and foreign exchange reserves, which were equivalent to nine months of imports in 2017, are expected to continue to fall in 2019.

Attempts to diversify the economy

Prime Minister Keith Rowley of the People's National Movement (PNM) has been in power since September 2015 and is expected to continue working to consolidate public finances despite his waning popularity rating. Commanding a majority in parliament (23 out of 41 seats) and mindful of the economy’s under-diversification, the government has set itself the goal of developing the local productive system by attracting more investment to the energy (petrochemical sector in particular) and non-energy (tourism, agri-food, finance) sectors. With this in mind, Trinidad and Tobago has become the first Caribbean country to join the Belt and Road initiative, which will include a partnership with China to build infrastructure on the territory. However, the country’s development continues to be held back by institutional weaknesses, corruption, high inequality (20% of the population lives below the poverty line) and a high crime rate due to drug trafficking.

The country is set to maintain its international relations by playing an active role in the Caribbean Community (Caricom) and in cooperative initiatives to combat crime and drug trafficking, mainly in partnership with the United Kingdom and the United States.